Nick’s Note: Regular readers know we’re bullish on the markets. But that doesn’t mean we throw caution out the window. Even in a bull market, there are still risks.

That’s why we turn today to master trader Jeff Clark, who’s expecting some short-term volatility. Below, Jeff reveals some warning signs that you should be looking for.

The S&P 500 is trading at new all-time highs. The index is up more than 18% for the year. It’s up almost 4% in just the past month alone.

There’s no doubt, the bull market is alive and well.

But I can’t shake the feeling that the bulls are being set up on this recent move.

Things are just too comfortable. It seems no one is concerned about any possible downside. Everyone in the financial media is “buy, buy, buy.” There’s hardly ever a mention of risk.

Oh sure, we get the obligatory reference to the highest price-to-earnings (P/E) valuation ever. But it’s shrugged off. “The new tax bill changes everything,” they say.

I’m not so sure.

Traders should be defensive here. There are just too many warning signs in the recent action. For starters, the Nasdaq is lagging. It hasn’t confirmed the recent high in the S&P 500.

Semiconductor stocks—which are usually market leaders—are lagging badly as well. The VanEck Vectors Semiconductor ETF (SMH) is still 6% below its November high.

VIX options are pricing in a much higher VIX over the next day and the next month. Plus, the chart of the VIX looks to me like it’s poised for a sharp move higher. All of the technical indicators on the intraday charts of the S&P are overbought.

I’m not even including the speculative action in bitcoin in the discussion yet.

Yes… it’s Christmastime—which is a hugely bullish seasonal time of the year. Normally, I’m looking to buy stocks on weakness during this season.

But I’m not about to buy anything here (except gold stocks). I just have an uneasy feeling about things. I’d rather stay sidelined and miss the extension of the recent stock market rally—if it happens.

Maybe I’ll look back a few weeks from now and wish I had told folks to get aggressive on the long side, lever up their positions, and try to make the most money possible as the stock market extends its rally into the end of the year.

But then again, maybe I’ll be glad we sidestepped whatever carnage the Market Gods might throw at us over the next few weeks.

From my perspective, whatever that’s worth, I just don’t like the look and feel of things right now. I’d rather miss out on the potential gains of an overpriced market—one that still might race higher into the end of the year—than suffer the consequences of buying overpriced stocks in an extended market.

Holding a large percentage of cash is a good thing right now.

Best regards and good trading,

Jeff Clark
Editor, Market Minute

P.S. If you’d like to receive my free daily market insights in the Market Minute, click here and I’ll automatically add you to my list. You’ll also receive a link to my “Guide to Options Trading” just for signing up. This free report will teach you how to trade options the right way… and dramatically boost your overall returns.

CHART WATCH

Cryptocurrency Market Soars in 2017

On January 1, the cryptocurrency market sat at a paltry $18 billion… Today, it’s at $500 billion—28 times larger than where it was to start the year.

There are several catalysts behind the cryptocurrency’s rise in 2017… but the launch of a bitcoin futures exchange is largely responsible for the recent spike higher.

More than $118 billion has flowed into the cryptocurrency market space since the Chicago Board Options Exchange began offering bitcoin futures on December 10.

At $500 billion, the crypto market cap is still tiny. By comparison, gold’s market cap is about $8 trillion. And the world’s stock markets are worth more than $90 trillion.

Despite the massive gains already, expect cryptocurrencies to rise even higher in 2018 as more institutional investors move in.

—Nick Rokke

MAILBAG

Nick’s Note: In today’s mailbag, readers weigh in on the Crypto vs. Gold debate between Teeka Tiwari and Jim Rickards.

From Christiane R.: No question Teeka’s “side” won hands down with much more coherent reasoning. Jim Rickards is a smart guy, but he came off as a spoiled child.

The argument for gold may work for preserving large amounts of wealth, but gold is totally unsuitable as a form of money for the average person. Also, Rickards’ argument about the criminal usage of bitcoin applies more to gold, which can be truly anonymous. Excellent debate.

From Ken N.: Bitcoin and its altcoin cousins are rip-offs. They have no value and, as such, are just another fiat currency. Besides the obvious potential for fraud, they aid criminal transactions. The industry will soon crash when the “miners” run out of electricity to run the blockchain computers.

IN CASE YOU MISSED IT…

To make money, Jeff Clark didn’t use stocks… bonds… mutual funds… dividends… ETFs… or any other conventional Wall Street approach.

He used a “secret key” to find opportunities to make money.

For many years now, Jeff’s kept his secret all to himself. Today, he’s using it to help people generate thousands of dollars per month… without touching stocks or bonds.

He tells all in this free presentation…